Fitch also affirms the company's pari passu, fixed-rate Industrial Revenue Bonds (IRBs) at 'BB+'. The other outstanding debt remains unaffected.
The Rating Outlook remains Negative.
The proposed CITGO transaction will result in a refinance of its existing Senior Secured Term Loan B due 2015, Term Loan C due 2017, 11.5% notes due 2017, and Revolving Credit Facility, as well as make a
The proposed refinancing is modestly leveraging (total debt including capital leases rises from
CITGO has substantial headroom on a stand-alone basis at the current 'BB-' rating level. However, the company's linkage to its much weaker parent,
KEY RATINGS DRIVERS
CITGO's ratings are supported by the scale and quality of the company's refining assets, with three high-complexity refineries consisting of approximately 749,000 barrels per day (bpd) of refining capacity on the
Linkage to PDVSA
The company's stand-alone strengths are balanced by CITGO's strong operational linkage to parent PDVSA which is evidenced through CITGO's contracts to take approximately 300,000 bpd of PDVSA crude at its
Favorable Crude Spreads
CITGO has benefited from wide discounts associated with landlocked WTI and other interior North American crudes, as embodied in the Brent-WTI gap (average of approximately
Strong Stand-Alone Credit Metrics
CITGO's credit metrics are strong for the rating category. As calculated by Fitch, on a proforma basis, CITGO's total debt and capitalized lease obligations will be
CITGO's liquidity was ample as of
CITGO's other obligations are manageable. The deficit on the funded status of CITGO's Pension Benefit Obligation (Pension Assets - PBO) declined to
It is important to note that there are relatively robust covenant protections in CITGO's secured debt which restrict the ability of its parent to dilute CITGO's credit quality. These include a debt/cap maximum of 60%, with a lower 55% test for purposes of making distribution to the parent; and a restricted payment basket which limits the ability of CITGO to make distributions to its parent.
The notching between CITGO's IDR and secured ratings reflects the strength of the underlying security package, which was expanded in 2010 to include the 167,000 bpd
Positive: Future developments that may, individually or collectively, lead to positive rating action include:
--Improved ratings at the parent level;
--Continued strong financial performance at CITGO centered on maintenance of low debt/EBITDA leverage ratios and continued positive FCF.
Negative: Future developments that may, individually or collectively, lead to negative rating action include:
--A downgrade at the parent level;
--A collapse in refining fundamentals or sustained operational problem at one or more refineries;
--Weakening or elimination of key covenant protections contained in the senior secured debt through refinancing or other means.
Note that this last action in particular, while not expected over the medium-term given the planned refinance transaction, would weaken the notching rationale between parent and subsidiary, as the ring fencing created by the secured debt covenants offer substantial protections to all CITGO debtholders.
Additional information is available at 'www.fitchratings.com'.
--'Corporate Rating Methodology including Short-Term Ratings and Parent and Subsidiary Linkage' (
--'Fitch Downgrades PDVSA's IDRs to 'B'; Outlook Negative' (
--'Cash Flow Trends in the US Energy Sector (Shareholder Activism Having an Impact)' (
--'Scenario Analysis -- Lifting the Crude Export Ban' (
Corporate Rating Methodology - Including Short-Term Ratings and Parent and Subsidiary Linkage
Cash Flow Trends in the U.S. Energy Sector (Shareholder Activism Having an Impact)
Scenario Analysis: Lifting the Crude Export Ban (
2014 Outlook: North American Oil & Gas (Strong Oil Prices Continue to
Energy Handbook -
Source: Fitch Ratings
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